Capital buffer and credit‐risk adjustments in Islamic and conventional banks

Bougatef, Khemaies; Korbi, Fakhri

doi:10.1002/tie.22022

Cited by 8 publications

(7 citation statements)

References 33 publications

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“…Furthermore, for commercial banks of India during the period between 1998 and 2012, Maji and De (2015) found similar effects of regulatory capital on banks risk, where banks risk is negatively influenced by capital limitations especially after the introduction of Basel III. Another study by Bougatef and Korbi (2019) where banks from the Middle East and North Africa (MENA) were considered over the 1999-2016 period, the association between credit risk and capital buffer was examined for both CBs and IBs. The study revealed that the two variables are negatively associated for both types of banks in a bidirectional manner: in other words, bank react to the increase in capital buffer by lower their credit risk exposure and vice versa.…”

Section: Literature Reviewmentioning

confidence: 99%

Does capital adequacy ratio influence risk-taking behaviour of conventional and Islamic banks differently? Empirical evidence from dual banking system of Malaysia

Harkati

Alhabshi

Kassim

2020

JIABR

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Purpose The purpose of this study is to investigate the influence of capital adequacy ratio (CAR) prescribed in Basel III on the risk-taking behaviour of Islamic and conventional commercial banks in Malaysia. It also investigates the claim that the risk-taking behaviour of Islamic banks (IBs) and conventional banks (CBs) managers is identically influenced by CAR. Design/methodology/approach Secondary data for all CBs operating in the Malaysian banking sector are gathered from FitchConnect database for the 2011–2017 period. Both dynamic ordinary least squares and generalised method of moments techniques are used to estimate a panel data of 43 commercial banks, namely, 17 IBs and 26 CBs. Findings The findings of this study lend support to the favourable influence of CAR set in Basel III accord on risk-taking behaviour of both types of banks. CBs appeared to be remarkably better off in terms of capital buffers. Evidence is established on the identicality of the risk-taking behaviour of IBs and CBs managers under CAR influence. Practical implications Even though a high CAR is observed to hamper risk-taking of banks, the findings may serve as a signal to regulators to be mindful of the implications of holding a high CAR. Similarly, managers may capitalise on the findings in terms of strategising for efficient use of the considerable capital buffers. Shareholders are also concerned about managers’ use of the considerable capital buffers. Originality/value This study is among a few studies that endeavoured to provide empirical evidence on the claim that IBs mimic the conduct of CBs in light of the influence of CAR prescribed in Basel III on risk-taking behaviour, particularly banks operating within the same banking environment.

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Section: Literature Reviewmentioning

confidence: 99%

Does capital adequacy ratio influence risk-taking behaviour of conventional and Islamic banks differently? Empirical evidence from dual banking system of Malaysia

Harkati

Alhabshi

Kassim

2020

JIABR

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“…Islamic banks generate a significant amount of income from their credit business (Muneer et al , 2020; Shaikh et al , 2020). Contemporary research on credit risk mainly deals with its determinants or its relation with monetary policies, whether it relates to an Islamic or a conventional bank (Ali et al , 2021; Bougatef and Korbi, 2019; Dione, 2020; Rosli et al , 2019). However, there is more to credit risk in Islamic banks because when Islamic banks finance their customers, they have to deal with the issue of compliance with Shariah as well (Bougatef and Korbi, 2019; Rosli et al , 2019; Sobarsyah et al , 2020).…”

Section: Literature Reviewmentioning

confidence: 99%

“…Islamic banking has shown its potential to stand against two major crises within a span of 12 years (Bilgin et al , 2021; Bougatef and Korbi, 2019; Rahahleh et al , 2019). The first one was the financial crisis of 2008, and the second one stemmed from the COVID-19 health crisis (Bilgin et al , 2021; Iqbal et al , 2022; Sobarsyah et al , 2020).…”

Section: Introductionmentioning

confidence: 99%

Role of fintech in credit risk management: an analysis of Islamic banks in Indonesia, Malaysia, UAE and Pakistan

Shah

Fianto

Sheikh

et al. 2023

JSTPM

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Purpose The purpose of this study aims to examine the effect of fintech on pre- and post-financing credit risks faced by the Islamic banks. Design/methodology/approach This research uses primary data for fintech awareness and adoption and secondary data of various financial and economic variables from 2009 to 2021. It uses baseline regression to identify moderation of fintech controlling gross domestic products, size, return on assets and leverage. The findings are confirmed using robustness against key variable bias. It also uses a dynamic panel two-stage generalized method of moments for endogeneity. Findings The study finds that the fintech awareness and adoption are not the same across all Islamic countries. The Asia Pacific region is far ahead of the other two regions where Indonesia is ahead in terms of fintech awareness and adoption, and Malaysia is ahead in terms of reaping its benefits in credit risk management. Fintech affects prefinancing credit risk significantly more than postfinancing credit risk. Also, the study finds that Islamic banks suffer from the problem of “Adverse selection under Shariah compliance.” Practical implications This research invites regulators to introduce fintech in Islamic banks on war footing. Similar studies can be conducted on the role of other risks such as operational and market risks. Fintech will also help in improving the risk profile and stability of Islamic banks against systemic risks and financial crises. Originality/value This research has variety of originalities. First, it is the pioneering study that addresses the effect of fintech pre- and post-financing credit risks in Islamic banks. Second, it identifies “Adverse selection under Shariah compliance” for Islamic banks. Third, it helps identify how fintech can be useful in reducing credit risk that will help in reducing capital charge for regulatory capital.

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“…Lately, Bougatef and Korbi (2018) assess the interactions between changes in capital buffer and changes in credit risk of Islamic and conventional banks from the Middle East and North Africa (MENA) region for 1999-2016. Their results suggest that an increase in the changes in capital buffer has a negative effect on the changes in credit risk for the two types of banks.…”

Section: Table 1: Definitions Of Regulatory Pressurementioning

confidence: 99%

Capital Regulation and Risk-taking Behavior: Empirical Evidence for Islamic Banks

Daoud

Kammoun

2022

IRMM

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This paper investigates whether regulatory pressures have an impact on the relationship between change in capital and bank risk-taking. On the basis of a well developed theoretical background, capital regulation constitutes the core of prudential regulation within the banking sector. Several researches have investigated this relationship between capital and risk in conventional banks, and this subject has gained in interest since the last financial crisis. This study is one of the few studies that have attempted to provide empirical evidence on this issue for Islamic banks. We use data of Islamic banking sectors over the period 2010–2014. The results reveal that Islamic banks tend to behave differently at each level of capital adequacy. In addition, we provide some evidence that change in capital is positively related to the change in risk for highly capitalized Islamic banks.

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Capital buffer and credit‐risk adjustments in Islamic and conventional banks

Cited by 8 publications

References 33 publications

Does capital adequacy ratio influence risk-taking behaviour of conventional and Islamic banks differently? Empirical evidence from dual banking system of Malaysia

Does capital adequacy ratio influence risk-taking behaviour of conventional and Islamic banks differently? Empirical evidence from dual banking system of Malaysia

Role of fintech in credit risk management: an analysis of Islamic banks in Indonesia, Malaysia, UAE and Pakistan

Capital Regulation and Risk-taking Behavior: Empirical Evidence for Islamic Banks

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